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I am looking forward to attending iSpirt’s Intech50 event next week in Bangalore. Fifty Indian enterprise technology companies will be there, meeting with fifty CIOs from the US and India.  Congrats to everybody at iSpirt, including Sharad Sharma and Avinash Raghava, for organizing what promises to be a productive spot-market.

We have put the names of the Intech50 companies into a list and categorized by tech category (applications, infrastructure, tools), vertical (e.g. none, financial services, retail) and geographic focus (India, India->Emerging Markets, India->Global, Global). See the Slideshare embed below to view or download the document.   Perhaps this is of help to you while navigating the Intech50 event.

These companies are two-thirds infrastructure, one-third applications. Analytics and security dominate the categories, followed by HR and CRM. A good 75% are horizontal solutions while the rest are verticalized. And more than half have a global go-to-market while about 40% are focused on India or adjacent markets.

The last decade, especially the past five years, has seen a lot of change for the better in the enterprise tech startup market in India. Startups have started building world-class product and user experiences. They have understood how to leverage online marketing to acquire customers outside India, versus relying on channel partners in other countries or sticking to just the India market. They have figured out how to initiate direct sales abroad, not relying on hiring expensive VPs of Sales as a first step but sending founders abroad to kickstart sales. They have started efficiently selling into the long-tail of companies rather than just focusing on large enterprises. And they have taken full advantage of platforms such as AWS, Force.com, etc. to run and distribute their products.

I think there is a clear progression forward from the types of enterprise software companies started 7-15 years ago which many times started with services projects; were usually vertically focused on banking, telecom or retail; and, despite branching out to SE Asia, Middle East and Africa, have generally tapped out growth at the sub-$10M annual revenue mark.  There were exceptions of course, including companies like I-flex, Subex and Ramco.

Lightspeed globally has put a majority of its capital to work in enterprise technology companies, represented here.  Many of our portfolio companies, including Qubole, Numerify and Bloomreach, have teams in India.  In India, we are looking for enterprise technology companies that can be category-defining and category-leading and can scale to $50-100M in revenue over time.  We are finding higher than average growth coming from applications companies focused on a global or US go-to-market – examples in India would be Freshdesk and Unmetric. We are also seeing such growth from globally-focused infrastructure and developer enabling technologies – examples in India would be Druva, WebEngage and HelpShift.

See you at Intech50! Come talk to us. You can reach me at dkhare at lsvp dot com.

 

 

 

 

 

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newyear

With all the speculation about Bitcoin and an exciting 2013 behind us, I thought that a list of predictions for 2014 would be a good way to start this year. These predictions are based on growth patterns of similar networks, the traction in various ecosystem activities last year, and my conversations with various Bitcoin enthusiasts. So here are my Top 10 predictions for Bitcoin 2014.

1. More than $100M of venture capital will flow into Bitcoin start-ups.

This pool of capital will be distributed across local/global exchange start-ups (e.g. BTC China*), merchant-related services (e.g. Bitpay), wallet services (e.g. Coinbase) and a host of other innovative start-ups. A large chunk of the capital is likely to flow into startups which have emerged winners in their respective segment with majority market share. Building exchange liquidity and merchant network is tough. Hence, these businesses are likely to command high valuations as well. That being said, there would be plenty of money available for start-ups trying to solve a plethora of other challenges (e.g. private insurance, security), that exist with Bitcoin growth and adoption today.

2. Mining ‘will not’ be dead

A lot of press notes and individual viewpoints state that mining is dead, as we are already in the petahash domain and are restricted by Moore’s law from a technological stand point. I believed this until I heard Butterfly Labs and HighBitcoin talk about how enterprises can potential adopt mining. With transactions and transaction fees rising, it would be highly profitable for large enterprises to have data centers with mining equipment to process daily transactions. Medium enterprises, who cannot invest in capital expenditure, would resort to cloud-based mining. Finally, small enterprises would have to pay transaction fees, to the network. These fees would still be lower than those paid to Visa and Mastercard. In conclusion, we can potentially witness investment from large and medium enterprises in mining farms as early as the end of 2014.

3. There will be less than 5 alt-coins (out of the 50+ in existence) that will survive 2014

The open source nature of the Bitcoin protocol led to the advent of over 50+ alt-coins, most of which are blatant rip-offs with a tweak or two here and there. These can be divided into three categories

  1. Coins which are Ponzi schemes, where the sole purpose of the inventor is to drive the price of the alt-coin up and them dump
  2. Coins which can be mined easily and can have potentially more liquidity than Bitcoin
  3. Coins, which are based on a fundamental innovation and can result in specific adoption or security led use cases.

In my opinion, only the category 3 ones would survive. PPC coin, which has introduced a proof-of-stake system in addition to proof-of-work, is one such coin. It is on my list of survivors. It is also important to note that presently, other than Bitcoin, no other alt-coin has shown the potential for a growth in its acceptance network among merchants or companies. This is likely to remain true for 2014 as well.

4. Bitcoin community will solve problems including that of ‘anonymity’

One of the key roadblocks for governments and financial institutions to start participating in Bitcoins is the anonymous nature of transactions. This has led regulators to believe that Bitcoin can potentially be used for money laundering, terrorist support etc. The good news that we have a very active Bitcoin community globally, which is constantly evolving the protocol. Hence, my prediction that in an effort to make Bitcoin more accepted, this community will come out with a solution to ‘anonymity’ that regulators can live with. One of the ways is it being done today is by forcing exchanges, wallet services and other Bitcoin companies to have KYC practices similar to those of financial institutions. As a side thought – Internet was and is still used for porn. That does not make it ‘not useful’!

5. US, China and other global forces will not be at the forefront of Bitcoin adoption

Fincen, PBOC and RBI’s reaction to Bitcoin in US, China and India points to one single conclusion – we are not going to let a ‘controlled’ and ‘vast’ financial system adopt a decentralized crypto-currency, which can be anonymous and used for illegal activities…as yet. Countries which have had a history of currency issues and have not had effective monetary policies are the ones who will be at the forefront of Bitcoin adoption. With China out of the mix currently, one can look at Argentina, Cyprus and others to lead. These may be smaller as a proportion of the global base. However they are likely to have much more local penetration and most importantly more government support or less government intervention – whichever way you want to look at it. That being said, successful internet and mobile companies in the US/Europe are the ones, who are most likely to offer digital goods in Bitcoins. Zynga just announced their experiment. I would not be surprised if Spotify, Netflix etc are next.

6. Indian ecosystem will be slow to evolve; limited to speculators and mining pools

The Indian Bitcoin start-up ecosystem today is limited to less than ten startups, including exchanges such as Unocoin, wallet services such as Zuckup, mining pools such as Coinmonk and some other ideas – compared to hundreds of them in each US and China. There is little evidence today to ascertain whether any of these startups are going to create a home market or serve an international market. In fact on the contrary, the Indian market is likely to be served by global Bitcoin companies. For instance, Itbit, a Singapore based exchange has already started targeting Indian consumers. Global services have demonstrated the capability to be credible especially when it comes to convenience and security by solving complex algorithmic problems. This also makes them more defensible in the long run (e.g. Coinbase’s splitting of private keys to prevent theft) and poses a big challenge for Indian Bitcoin start-ups. There is an active Bitcoin community in India (about 15-20 people), which is trying hard to create awareness among consumers and regulators. I sincerely hope to see at least one world-class Bitcoin startup come out of India.

7. The use of Bitcoin will evolve beyond ‘store of value’ or ‘transactions’

The underlying Bitcoin protocol makes itself applicable beyond the use cases of ‘store of value’ and ‘payments’. The Bitcoin foundation took a huge step in allowing meta data to be included in the blockchain. This will unlock a lot of innovation and maybe even prompt regulators to acknowledge the potential of Bitcoin, making it all the more difficult for them to shut it down or suppress it. As one can see from the current Bitcoin ecosystem map that there are almost no startups, which solely use the protocol without using the ‘coin’ or the ‘currency’ as a function. 2014 will be the first year to see some of these.

8. The ‘browser’ of Bitcoin will come this year

The Netscape browser made the Internet happen. ‘Something’ will make Bitcoin happen. It is still very difficult for the average ‘Joe’ to understand, acquire, store and use Bitcoins. Though Coinbase and several others are working on innovative security algorithms and making it easy to store Bitcoins digitally, it is still not enough to make Bitcoin mainstream. Hence, what a ‘browser’ did to the Internet, a product or technology innovation will do it to Bitcoin in 2014. This will make the transition to Bitcoins frictionless. Kryptokit and Eric Voorhees’ Coinapult are promising startups in this direction. Encouragingly, all the building blocks for that to happen – like mobile penetration, cryptography algos etc are already in place.

9. The price of Bitcoin is likely to range between $4000-5000 by the end of 2014

Well, though some people will argue otherwise, price is not the most important thing about Bitcoin. But given the interest and its volatility, it does deserve a place in this blog post. Speculators have predicted Bitcoin to go upto $100, 000; some say the maximum it can reach is $1300. Though, am sure that there is some underlying basis for these predictions; here is the one for mine. Bitcoin’s price is a function of supply and demand. While the supply is predictive, the demand is less so. However, the increase in the demand of Bitcoin can be compared to networks such as Facebook and Twitter, which have followed a ‘S’ curve of adoption. All such networks typically take 6-8 years to plateau out with year 4-5 being the steepest. Though Bitcoin was invested 4 years ago, I would say that 2013 was its 2nd real year. Given the nature of the ‘S’ curve, the price increase in 2014 is likely to be 3-4 times more than the one this year. Hence, the $4000-$5000 range, where the Bitcoin price is likely to settle down in 2014.

10. Last but not the least – Satoshi nakamoto will be Time’s Person of the Year 2014.

Please read about him here.

* Investments of Lightspeed Venture Partners

[Published in Mint on May 30, 2013. Here is the link to an abbreviated version of the article on LiveMint.]

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[Credit: Laurynas Mereckas]

Building a startup into a successful high-impact company is not easy – it is hard no matter where in the world the founding team may be located or which geography is targeted.

It is even harder in India, despite the macro outlook almost always looking rosy – 1+ billion people, strong economic growth, emerging market/BRIC, technical expertise, many underserved needs etc.

Many of India’s successful startups have navigated a maze of challenges, creating leading brands and sustaining for long periods of time.  Correspondingly, it is much harder in India, relative to the US/Europe, for competition to unseat leading brands.  Erstwhile startups that have created a successful brand include Cafe Coffee DayDr Lal’s PathlabsFlipkartIndian Energy Exchange (B2B), Indigo Airlines, Infosys (B2B), InMobi (B2B), Justdial, Makemytrip, Naukri (B2B), one97 and Snapdeal.  

Here are some of these environmental challenges that I see many startups facing here. These are almost never explicitly discussed. Perhaps this is because it’s like the air – it is just self-evident and it is hard to solve for these.

Market friction

Many of the successful companies we talk about today in India took 10+ years to get to escape velocity and impact.  Why? India-focused startups have to change buyer behavior and/or create infrastructure  (eg Flipkart’s several thousand people in logistics, Meru Cabs’ owned & operated taxi fleet, One97’s PayTM mobile payments infrastructure), as opposed to purely focusing on better/faster/cheaper solutions.  As a result, I generally see linear organic growth in companies targeting the Indian market.  There are some companies that have overcome this by creating low-friction offline models e.g. Dr. Lal Pathlabs with low-capex collection centers, and micro-finance businesses with repetitive hassle-free loans to the bottom of the pyramid.

Some other sources of friction include:

  • the need for offline presence (even for mainly digital companies).
  • difficulties in payment collection from consumers and businesses.
  • gatekeepers that have optimized for self-preservation/cashflow.
  • government-driven paperwork for compliance & set-up and regulatory uncertainty.

A series of small markets

Startups need large markets (Rs 2500cr+ or $500 million+) to get large and succeed.  This is hard to find in India, perhaps due to early consumer demand, unorganized markets, regional differences or foreign substitutes.  For example, digital advertising is a roughly $400 million annual business here, with mobile at 10% of that. To access and maintain growth, almost every new startup here needs to increase their focus on creating and evangelizing their category versus just focusing on their own startup’s growth.

Some examples of overcoming this challenge include:

  • spending large amounts of capital to create a category (eg ecommerce, OTA, wireless telecom).
  • expanding into adjacent markets (eg Info Edge, which expanded from jobs into matrimonials, real-estate, education etc.).
  • building or piloting in India and transplanting to the US (eg Zoho)
  • aggregating several emerging markets outside India, perhaps before proceeding to Western Europe and the US (eg InMobi, iFlexSubex).
  • attacking a large spend base (eg Micromax for hardware, Cafe Coffee Day for coffee/tea/snacks, BillDesk for bill payment).

While many startups choose to access existing categories abroad (eg smartphone apps), many Indian startups have successfully created India-specific categories, including inbound marketing (JustdialZipdial), B2B marketplace (IndiamartIndian Energy Exchange), assisted services (OneAssist, Onward MobilitySuvidhaa), MVAS (OnMobileIMIMobile), entertainment services (Dhingana) and transport aggregation (RedbusOla Cabs).

Lack of trust

Lack of trust is endemic in India, whether you are driving through the streets (and perhaps Delhi is an extreme example of lack of trust!) or negotiating with corporate partners. Examples include:

  • (some) people misrepresent themselves materially without any consequences (eg overselling).
  • (some) founders focus on control at the expense of value creation.
  • potential buyers have a hard time parting with payment details or paying for off-the-shelf software.
  • (some) people negotiate all the corner cases in extreme detail, to the point where the law of diminishing returns kicks in pretty strongly.
  • trust gap between regulators, law enforcement and business.
  • trust gap between promoters (aka founders) and investors and potential misalignment on timelines and strategy.
  • (some) government and companies focus on protecting themselves from the 1% of customers who are gaming the system at the expense of the 99% remaining customers.

Relationships, not contracts, govern deals.  Many brands in India are created from execution reliability at scale rather than product differentiation.  Brands  in India are disproportionately more valuable as they represent a trusted provider of products or services – think about the enduring value of the Tata brand in multiple unrelated categories.  As one consequence, I believe more startups should think about brand-building here in India relative to if they were in the US.

Hard to find strategic talent

Almost every entrepreneur and investor I speak with has this issue.  This is not easily solvable – the only potential solution is to focus on A+ people right from the founding team onwards and never compromise on that front, even if it means slower roll-outs.  Zoho and InMobi are often cited for building great teams.

Strategic talent is hard to find, including executives, product managers, product marketeers and design experts.  We find ourselves scouring large established companies in India for executives and many times find these executives short on ability to take career risk and lower startup-level compensation in exchange for equity.  We look abroad sometimes to import talent.   One other friction point tends to be lack of middle management willing (or empowered) to take their own initiative and a cultural bias for say:do ratio > 1 (interesting quote by an anonymous founder) which generally means that execution requires a lot of hand-holding.

The smaller pool of founder/co-founder and risk-taking startup employees results in lots of churn and inordinately long hiring cycles, although this is changing fast at a cultural level in India.  It is also quite stunning how many times people who have signed employment contracts do not show up on their first day of work.

Not enough experienced mentors

India has an early (but fast-growing) eco-system for new venture creation. I see successful founders giving back to the founder community in a big way through investments, mentorship and driving industry hygiene.

However, there aren’t enough successful founders yet to cater to the much larger group of new founders who need help.  Without the perspective provided by aligned mentors, many founders are finding it tough to pivot or accelerate.

I am optimistic on this front, as many experienced and competent mentors have stepped forward over the last two years.  In my opinion, this is one of the reasons driving the creation of many of the incubators and accelerators in India which are centered around these hard-to-find mentors.

Constricted access to capital

This has been an issue in India for a long time and is probably why there is a higher focus here on companies to get to cash-flow breakeven fast or to trade-off growth for cash-flow.  It is not surprising that the early successes in Indian ventures have mostly come from services-oriented business (e.g. outsourcing, BPO) or offline consumer businesses that grew organically for a while.

Many would point to investors being over-cautious and risk-averse.  I think that the environmental factors mentioned above are the causal factor for investor cautiousness and not vice versa.  I would argue that the $1.1B in 2011 and $762M in 2012 (source:  Venture Intelligence) that went into venture in India was perhaps more than the market could absorb efficiently.  Capital is abundant in the growth stage, once product-market fit and/or profitability has been achieved, and hard to come by in the development stage (ie pre-revenue and/or pre-traction stage).

Indian startups have developed a unique set of growth strategies to overcome the challenges mentioned above.  I will write about these different growth strategies (and perhaps deep-dive into some of the challenges) in subsequent posts.  I am hopeful and excited about companies in India that are overcoming these challenges.

Thanks to the brain trust, who provided feedback and contributed ideas, including Bhawna AgarwalKunal BahlRaj ChinaiAshwin DameraPranay GuptaRavi GururajRavindra KrishnappaSasha MirchandaniKavin MittalSuchi MukherjeePallav NadhaniHitesh OberoiJanhavi ParikhAvinash RaghavaAmit RanjanRajesh SawhneyVijay Shekhar SharmaAmit Somani and my colleagues here at Lightspeed Ventures Maninder Gulati, Apoorva PandhiAnshoo Sharma and Bejul Somaia.

Please note that three companies mentioned in this article – Dhingana, OneAssist and Indian Energy Exchange – are Lightspeed portfolio companies.

india_rupee

I think there is a lot of potential and hope, especially now, for founders to start online (only) services businesses. Indian consumers seem to be opening up to paying for online B2C services, where purchase and most fulfillment is online. This trend is a natural outcome of India’s increasing online population (>125M now) and familiarity with online as a channel (20M bought online in last 12 months, 7M of which were non-travel). Barring a few exceptions noted below, this space has historically been challenging but I hope to see that changing in future.

Successful examples of existing online services in India include matrimony (Shaadi and Bharat Matrimony) and also aggregators across categories like travel (rail, air, bus), movies and mobile phone recharge. While the aggregator segment has been more successful because of direct linkage to offline services, it is relatively less interesting (and more capital intensive) because of low absolute margin per transaction and dependence on offline delivery for scaling versus a service which is purely digital in nature.

Subject to a large potential paying consumer base being available, pure online services are fundamentally very attractive to entrepreneurs and investors because of:

  • High capital efficiency (high gross margins).
  • Become disproportionately valuable (given B2C/branded nature).
  • Ability to grow quickly, since they are not constrained by offline buildout (not applicable everywhere).

Here are a few examples below in categories where we are anecdotaly seeing early growth in new online consumer services:

  • Financial Services: Previously, the web was used primarily for lead generation.  Now, certain types of insurance (Auto, Life, Travel) that are delivered end-to-end online are gaining traction.

It is still early days for these trends – but I hope that the growth continues. If you know of other online categories or businesses which are getting traction, I would love to learn about them – please add to the comments section below.

PS: While mobile operator value-added services (MVAS) is a great example of online services, in my opinion, these services have not really been B2C.  As a result, I am not including MVAS in the list above.  My list also does not include businesses which collect revenue from offline vendors (e.g. Zomato) or have large offline delivery responsibility (e.g. goods ecommerce).

[Published in Yourstory.in]

There are two levels to this question:

a) Is there value in vernacular content?

b) Is there value in online vernacular content?

(My thoughts below the image)

(Source: Newshunt)

a) The first one is a clear YES, which wasn’t the case a few years back. In 2007, English publication readers constituted 10% of total print media readership, but garnered 60% of the total print ad-pie. Today, English still constitutes 10% of readers, but its share of the ad-pie has come down to 40%. In the same period Hindi grew from 20% to 30% of the ad-pie. To put things in perspective, the print-ad pie is ~$1B today, so Hindi print alone is at $300M of ad-revenue and growing at 17-18% annually. More data in a recent article in FE.

According to media buyers’ estimates, during 2007-09, the ad rate commanded by English newspapers was roughly 10x that of non-English dailies. This rate has contracted to about 8x and is further expected to come down to 5x or 4x in the next three years.

The above is also the driver for investments and growth in Hindi print. E.g. Blackstone’s investment in Jagran and Nalanda’s investment in DB Corp.

b) Value in online vernacular content is not showing in terms of monetization yet. Online advertising is gaining traction but it is mostly English today. However, it is encouraging that vernacular is building up readership – Dainik Bhaskar recently announced 200M monthly pageviews. Advertising spend on any media tends to inflect after reach (readership) crosses a threshold, and the signs for online vernacular are in the right direction.

Thus the answer to the question in the title of this post is “Yes, it seems so”, but it won’t be clear for some more time. Of course, when the answer is obvious to everyone, the opportunity no longer exists.

Takeaways for entrepreneurs:

There is an opportunity in vernacular: Online vernacular readership is increasing and will increase faster as internet and mobile-data access continue to penetrate deeper beyond the English-speaking population.

Monetization will take longer: Be prepared to keep a lid on the costs while the market shapes up. Good news is that the online ad-ecosystem is in place for English and given will bring $$$ to vernacular if there is an arbitrage opportunity in pricing.

Local plays an important role in vernacular: 60%+ of ad-revenues  in vernacular-print come from regional sources (regional fmcg brands, education institutes, local government, etc). The content too has a very local taste – print publications customize their content every 25 kms to fit into local dialects and preferences. So keep localization in mind in terms of content and as well as monetization.

Think mobile: With cost of devices and access continuously falling, mobile might be the primary channel for accessing vernacular content in India, unlike English.

Define your space: Large offline publications will always be faster and cost efficient in building content. You need to define your space but still be meaningful to a large enough population.

Think out of the box, especially if you are looking to raise venture funds. Content production is a linear businesses. Can there be a platform play where the effort/cost of building content is not directly proportional to content monetization?

– Finally, keep an eye on vernacular even if you run an online transaction business (like ecommerce). If vernacular audience is valuable to an advertiser (online or offline), it is likely valuable to you as well, so don’t close your doors on them by having an English-only website. The “access” value proposition of ecommerce is also more suited to the non-metros of India, which constitute ~50% of the orders today.

Please add your thoughts in the comments section.

Source: Dell

[Published in Pluggd.in]

“The technology itself is not transformative. It’s the school, the pedagogy that is transformative”
Tanya Byron, psychologist

As part of our upcoming founder-focused breakfast on education startups, I wanted to lay out my thoughts on the education space, which has proven to be a productive area for us through our investment in TutorVista.  This post is focused on K-12 education businesses.

After Educomp and Everonn built large businesses over the last few years, many education-focused businesses are emerging, piping existing and new content into classrooms or homes using new technology platforms like web, cloud, tablet and VSAT.  However, it is debatable if any of these businesses have measurably improved student learning outcomes.

Technology Adoption Lifecycle

Tech-enabled education businesses still have not crossed the chasm (they fall in region I and II above). In fact, of the ~80K private schools in the K-12 segment in India –only ~12-15% (# of schools doesn’t take into account # of classrooms per school, Educomp claim: 8000 schools) of them are using technology enabled solutions.

The key reason is that the perceived technology is being adopted by schools who buy those solutions that are vendor financed or paid for by the “early adopter” parent. To get to the main stream market (pragmatists, conservatives in the diagram above) a “whole product” needs to be stitched together that addresses the pain points of all the stakeholders of the education ecosystem effectively. Here are the pain points I see in the market:

  • Parents pay for everything but still haven’t seen any impact of the solutions on the child. Simply a technology enabled solution can’t intrigue them for long
  • Schools have benefitted from higher fees and more admissions with no investment. However with no measurable outcome, they have not been able to sustain high fee or any differentiation
  • Students do not learn anything fundamentally different from their text books
  • Teachers are negatively impacted by long execution lead times due to extensive teacher training

Though school as a distribution channel not only provides instant credibility but also a captive base of customers to the business, this channel might take time to scale since schools appear to be fatigued by a number of vendors offering similar solutions.

So how can a business create a bandwagon effect so that the product becomes a standard, a solution and a convenience?

Businesses need to have a strong value proposition by identifying the key intervention point (s) as well as by addressing some of the pain points mentioned above. Additionally they need to continuously innovate. They should:

  • Make intervention easier by tapping areas such as designing student feedback platforms for teachers /parents, customizing remedial content and developing out of school learning aids through asset light platforms since these are relatively untapped opportunities. It is essential to have closer involvement of educationists, rather than just technologists, since educationists would help create products that blend with the core needs of existing educational setups.
  • Design content which is easy to grasp, fundamental in nature and more interactive than text-book content.  Elements of high quality animation or gamification makes learning more experiential and activity-based and hence more engaging for students.
  • Figure out direct to customer (student/parent) “Edmodolike distribution channels to reduce friction in scalability.
  • Provide affordable solutions to the school/parent. Although the parent is fairly price elastic, it is essential to cut across the affordability criteria for the ~80K schools in the country.  The price can be a small percentage (up to 5%) of the school tuition fee or tutor fee depending on the distribution channel. Customer response/engagement can also be tested by giving the solution for free in the first 3-6 months of product launch.
  • Develop simplified tech platform frontends so that the teacher/student doesn’t need much hand-holding. Should involve basic steps that can be easily understood by a non tech savvy person.
  • Keep track of the key regulatory changes going forward since this space is unregulated. Introduction of CCE* (Continuous and Comprehensive Evaluation) is an example which has created new business opportunities .Some organizations such as Bureau of elementary/secondary education and CBSE, ICSE, IB, SSC, HSC, state education boards might be worth monitoring.

Potentially interesting areas for intervention (with examples):

  • K12 curriculum: This is a relatively crowded space but requires high quality interactive content through scalable asset-light technology platforms (cloud/tablets/web etc.). Idiscoveri is doing some meaningful work in this space through non tech platforms.
  • Student assessment/CCE*: These include adaptive learning methodologies with feedback, including remedial content so that teachers/parents understand the weak areas of each child. Additionally technology as an enabler can potentially improve efficiency of the teachers. Educational Initiatives is a relevant example in this space that resonates in my mind.
  • Out-of-school tutoring: These solutions include self-learning interactive content/tutoring through tablets/web/cloud. Tutorvista, a known name in this space and also one of our erstwhile portfolio companies, was acquired by Pearson in 2011.
  • Extra-curricular/counseling: Such models can be difficult to scale since this isn’t the basic requirement of the parent or the school, yet there is a possibility of building brands aimed at holistic development of the child. Edusports, a company that designs a K12 sports curriculum is one example in this area.

Though one might argue that the impact on the schools and the students would be more visible in the long term, there are a bunch of progressive schools such as Shri Ram (Delhi), La Martiniere (Kolkata), and Presidency School (Bangalore) etc. who seem to understand, appreciate and adapt meaningful products which should transform the pedagogy in the long term. As far as commercial schools are concerned they would follow suit once the models are proven.

(Source: Zen)

[Published in Medianama]

Ecommerce in India has gone through a cold spell, but there is hope for warmer days ahead. There appears to now be a clear focus on contribution margin and sustainability versus the previous race to buy topline. As Bejul explained in his post, customer lifetime value is a metric that Lightspeed believes is critical to measure and optimize.

The ecosystem is a key enabler of sustainability for an industry. For example, it is unviable for all ecommerce players to build end-to-end logistics and payments/wallet capabilities internally. Certain ecosystem trends are emerging which may help ecommerce businesses become more viable over time:

Capabilities of logistics service providers aren’t static

Logistics is where rubber meets the road, and ecommerce glamour meets the offline reality filled with dust, sweat and lost/wrong/delayed shipments. Some ecommerce specialist players now provide:

  • End-to-end ecommerce solutions, including inward, racking, picking, packing, shipping and collection.
  • Transparency into logistics company’s processes through APIs, which can reduce returns (and costs) and bring predictability.
  • Variable warehousing bills (per order shipped) that help manage costs at lower scale, and a projection for reduction in per unit cost with increasing scale of the ecommerce business.

There are several new and old companies worth calling out:

  • Dedicated ecommerce divisions within traditional players like Bluedart, Aramex, etc
  • New ecommerce logistics specialists such as Delhivery, Holisol and Chhotu. These companies and teams tend to be more hungry, innovative and nimble than their traditional counterparts but are still building their capabilities. Also interesting is Mudita for bulk inter city shipments.

Payment gateways/aggregators are trying to address pain points

Payment gateway failure horror stories are common, with failure rates as high as 35%. This continues to be a lost opportunity, and a very expensive one, as it costs up to Rs 1,000 to get the customer to that point.  Here are a few improvements/innovations that are coming up:

  • Wrapper technologies that work with multiple banks to minimize probability of transaction failure.
  • Deep analytics and visibility into customer’s intent to buy: For example, ecommerce companies can track a list of failed transactions (with customer and cart details) so that their teams can follow-up and close offline.
  • PCI/DSS compliant widgets which simplify the payment experience for consumers.
  • Capability to handle payments originated over mobile web.

There are traditional names like Billdesk, CC Avenues, EBS, who are incrementally adding value but the new teams that are coming up quickly are Citrus and PayU, in addition to GharPay which collects cash from consumers’ doorsteps when no physical delivery of goods is involved (e.g. tickets, collection in advance of shipping).

The industry is maturing

Some of the more recent trends I see are:

No-poach agreements: After the initial land grab in the OTA space, Yatra, Makemytrip, Cleartrip got into such arrangements. Leading ecommerce players are now discussing these. It is good from a talent pool perspective too, as people apply themselves to fix hard problems versus moving to the next job.

CoD Blacklist: CoD is a key part of Indian ecommerce. However, high CoD return rates (upto 25% in some categories) cause operational challenges and working capital burden. Some players are discussing creating an industry wide CoD customer blacklist – this can drive significant efficiency for ecommerce / logistics companies and a better experience for genuine customers.

Trust from OEMs/Brands: Brands/OEMs are putting more trust into ecommerce now. Eighteen months back ecommerce was not strategically important to brands/OEMs, but brands are now launching their own ecommerce platforms, and/or have a clear strategy for ecommerce as a channel. Senior executives with years of core category experience are now excited about ecommerce and are considering opportunities in this retail format.

These trends are still in their infancy but if they continue the situation will be very different a few years from now. The key question is to what extent and in what time frame will these developments move the needle in making ecommerce sustainable.

Some thoughts for ecommerce entrepreneurs

My thoughts for entrepreneurs building ecommerce companies are to:

  • Assess if you can derive value out of any of these services / trends: For example, compare if your current logistics / payment provider (in-house or outsourced) is competitive with the changing environment or revisit if you can bring in top talent from the domain into your team.
  • Step forward to support the ones you find relevant: For example, you would take risk when you test a new partner in your order flow (logistics or payment), or when you commit to not hiring from competition, but these partnerships can pay off very meaningfully in the long run.
  • If you are a new startup, identify and focus on your core competence: Logistics and payments contribute significantly to direct costs but they are only necessary and not sufficient for success.  So unless you plan to differentiate on these, leverage the ecosystem.

This list is by no means exhaustive, so please feel free to add more names / trends / thoughts in the comments section.

Here’s the presentation I gave at the IAMAI Digital Commerce event this morning:

(Source: Andrew Bolin)

[Published in Medianama]

I attended the Founders Forum event in Mumbai, organized by Rajesh Sawhney, Brent Hoberman and Jonathan Goodwin, as well as the Nokia Growth Partners Mobile Internet event.

Jonathan Bill of Vodafone spoke at both these events about upcoming changes in Vodafone’s offdeck rev-share regime in India.  This change, along with a potential broadband data plan price war and growth in smartphone users could result in a real transition in mobile data usage over the remainder of this year, charting a way out of the slump that I discussed in my last post.

Vodafone will start to offer more favorable rev-share deals to those direct-to-consumer mobile apps/services companies that will not rely on Vodafone for promotion and customer acquistion. In other words, developers will keep 70% of the revenue from their applications (at a scale of Rs 1 cr+ in billings; 60% below that), as opposed to the 25-30% currently prevalent here.  70% is more in line with what Apple and Google offer to developers for iOS and Android apps respectively as well as what operators are offering in the US, Europe, China and Japan.

The bet here is that the smaller operators like Aircel and Tata DoCoMo follow relatively quickly and then the larger ones like Airtel and Reliance may be compelled to follow suit – in aggregate, these greater offdeck rev-shares will drive more innovation and more revenue for developers.  Nokia, among others, is citing a 3-5x jump in conversation rates when operator billing is enabled for paid apps and in-app purchases.

I don’t think mobile operators are risking much in the short- to medium-term by tring this since this change in rev-share would only apply to offdeck billing and not to the majority of revenue that these operators get through whitelabeled services, data plans and p2p SMS that they already offer.  In the long-term, though, whitelabel services will suffer from competition from D2C apps/services – also, ARPU from data plans will come down in price wars although overall data plan revenue should go up with significantly higher numbers of data subscriptions.

I don’t expect these changes to break open the eco-system overnight.  70% rev-share to developers was offered in the US for several years prior to the iPhone being introduced in 2007, yet the eco-system there did not break-out.  Why?  Because there is lots of other friction in the eco-system as well, including multi-step transaction flows for consumers, 4-6 month payout periods for developers, reconciliation issues, no standard app discovery methodology (although app stores are starting to be offered by most operators today), no offdeck billing aggregator in India, fragmented platforms, lack of customer trust, and limited success/availability of multiple business models like paid apps, in-app billing, in-app advertising etc.

However, assuming this change from Vodafone comes through in the next couple of months, here’s some of what could ensue:

  • In anticipation of other operators following through with the same model, I expect to see the formation of many new teams with strong consumer acquisition, engagement and retention DNA.  Hopefully, with funds freed up for product and marketing, there should be a greater focus on building brand and acquiring customers directly on what will be the leading platforms in India in the next few years: mobile Web and Android (in my opinion, not SMS, USSD, J2ME or iOS).  I am bullish about the prospects of some of these D2C categories, especially related to entertainment.
  • Mobile ad networks (e.g. Google, InMobi, Appia, Getjar) will benefit from some increased performance-based ad spend from developers.  As we have seen in other countries, mobile content providers (music, ringtones, apps) with direct revenue models have been the earliest adopters of mobile advertising because they have been able to tie marketing spend directly to revenue.
  • Existing whitelabel MVAS vendors will launch consumer brands or start pushing their nascent consumer brands more aggressively.  In other geographies where the D2C eco-system opened up, whitelabel vendors have struggled tremendously with building consumer brands and have mostly failed.  Impediments include trying to maintain relationships with their mobile operator customers while competing with them in their D2C business and not having the consumer DNA in the team for user acquisition and retention.
  • Other mobile operators might slowly start offering similar rev-shares although I think they will wait to see the results of Vodafone’s new initiative before risking their arguably miniscule offdeck billing revenue streams.
  • We may see a carrier payments aggregator emerge once enough operators have changed their offdeck rev-share percentages.  InMobi (with Smartpay) and Opera are already moving this way in India as announced at MWC.  Boku, Zong, Paypal may come this way over time.  There should be a space for a standalone Indian carrier payments aggregator, along the lines of what Qpass did in the US a decade ago.

So, I see a much more vibrant and larger MVAS eco-system emerging over the next few years.  Now is a right time to start direct-to-consumer companies in mobile – we are seeing a ton of founders with exciting new ideas.  Bring it on!

(previously published on Nextwala blog and Medianama)

I find myself simultaneously excited by the future prospects of India’s mobile value-added services (MVAS) industry and depressed by the current friction in the eco-system.  Overall though, I am cautiously optimistic – there is some hope on the horizon in the form of upcoming offdeck rev-share changes, smartphone growth, and the (rumored) Reliance 4G launch.

So, what is the problem?

Mobile operator ARPU in India has collapsed from roughly $10 in 2005 to $3 currently, compared to a steady $11 in China and $70 in the US.  There is over-competition in the market – good news for consumers in terms of voice prices but bad news for consumers in terms of slower rollout of broadband and high wireless data prices.

Wireless data in India is relatively early – it accounts for ~$4.8 billion in revenue (according to IAMAI and Analysys Mason) or 16% of overall wireless revenue of ~$30 billion.  MVAS (excluding data plans and p2p SMS) accounts for approximately half of wireless data revenue in India.  Contrast this to US data revenue of ~$70 billion in 2011 (approximately 35-40% of overall wireless revenue of $200 billion) and China data revenue of $32 billion (approximately 27% of overall wireless revenue of $120 billion).  There are approximately 50 million mobile Internet users in India out of ~800 million mobile users.

MVAS companies in India are not growing fast (or at all).  Since they have traditionally focused on building businesses inside the operator walled garden, they have been governed by the 25-30% cap on the rev-share that they get.  Recent TRAI regulation changes have not helped the vendors (although I think consumers have benefited from the elimination of spam and seamy billing practices).  Due to their whitelabel nature and lack of consumer branding, most MVAS companies are being increasingly commoditized.  They also have a high cost base given the rev-share constraint, content licensing costs and the fixed cost of managing operator relationships.

The leading MVAS companies like OnMobile, IMIMobile, Comviva and One97 have now refocused their attention outside India.  Beyond that, there is a long-tail of MVAS companies, none of which seem to have truly punched through $5-10M per year in revenue and many of which have now optimized for cash-flow at the expense of growth.

No alternative payments platform in place.  Operator billing is the most pervasive payment mechanism in the world, and in India (apart from cash and checks).  Some sort of alternative mechanism needs to come along, whether cash load networks or mobile wallets with integration to net banking/ETF/credit cards/cash load networks or operator billing aggregators.  18 million credit cards is a miniscule number relative to 800 million+ mobile users.

But I think there is some hope on the horizon.  Here’s what to look out for in the next 12-24 months:

1) offdeck rev-shares could be poised to increase dramatically from 30% to developers going up to 70% in the next 12 months, with Vodafone leading the charge (more on this in the next post).

2) over the next 2-3 years, as true smartphones (Android/iOS) grow to ~100 million installed base, from the current 10-15 million, consumers will have access to a global applications database and regular payment options.

3) Reliance 4G may disrupt on pricing and rev-shares to break open the market.  This might drive a data plan price war.

(republished from Nextwala blog)

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